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Pre-Qualified, Pre-Approval, Approval... What Does it all Mean?the Real Estate Library Some buyers think getting pre-qualified is the same thing as getting pre-approved when in fact they are quite different. While definitions change in the market, below are general descriptions of what each process entails. Pre-qualificationGetting pre-qualified is simply getting an idea of the price range you can afford. It is based on your stated income, assets, and liabilities. With a pre-qualification, your information is not verified and the loan your pre-qualified for is not guaranteed. Pre-ApprovalDuring the pre-approval process is when the information you provide a lender is verified. There are two phases of the Pre-Approval process. In the first phase you give your lender permission to obtain your credit report. Your credit report will often confirm the information you provided them about debts, your employer and how long you have lived at your current address. It will also give them your credit score, or your credit rating. If the credit score falls within the acceptable range for the program that you're interested in, you become pre-approved. If your credit score is too low for your preferred loan program, your lender will discuss your credit report with you. Some erroneous information on the report that can be removed to improve your rating, or perhaps you have a situation that the lender will allow an exception. If you don't qualify for a particular program, there may be another program that best fits your situation; your lender is there to help you work through this process and find the right loan for you. Once this phase is completed, most lenders consider you pre-approved for a home loan. Most lenders require a small fee to apply for a loan, which is typically used to cover the cost of the appraisal and credit report. You will pay this fee up front because the lender has to obtain an appraisal in order to approve your loan. Regardless, if you decide to go through with the loan and purchase the property, the lender has to pay the appraiser and the costs to obtain your credit report. ApprovalFinal approval is when you have found your home, it has been appraised, the title report has been received and everything has been found to be acceptable to the lender. Once you receive final approval, you're ready to close. Knowing the difference between getting pre-qualified and getting pre-approved can help you avoid costly mistakes - including bidding on a home that is outside your price range. Helpful Financial Planning Calculators
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